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| FAQs Educational Loans |
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1. For what type of courses can educational loans be taken?
2. What are the costs covered under educational loans?
3. Who is eligible for an educational loan?
4. What is the maximum amount that can be availed under?
5. What security does one needs to provide for the loan?
6. What are the documents required for an educational loan?
7. What are the interest rates for educational loans and how are they calculated?
8. What is a holiday period?
9. How is the disbursement made?
10. Why do banks require an insurance policy?
11. Why does the repayment of education loans taken for studies start immediately?
12. Is there any special privilege for students in the SC/ST Category?
13. When do I need to apply for a loan?
14. I don't have a continuous track record of First Class,but I have secured admission in a reputed institute. Will I get loan?
15. Why are guarantors required?
16. Will I get an educational loan for `payment seats'?
17. What are `professional courses' and `other courses'?
18. What is the margin amount and how is it calculated?
19. Is the student's age a major consideration while applying?
20. Will air travel fare be given by the bank as part of the loan?
21. Is it necessary to have an account with the bank?
22. What do banks mean by `recognized' and `reputed' institutions?
23. How are my second- and third-year fees going to be disburse?
24. What Income Tax (IT) relief's can be claimed for repayment?
25. Can educational loans be availed for part-time courses/distance-learning?
26. What is an interest portion and EMI?
27. Can a minor avail of an educational loan?
28. What happens if I take a break from my studies?
29. Is there a penalty for pre-payment?
30. I need to pay in dollars for my studies, but the bank is in India. Can I get foreign exchange loan
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1.For what type of courses can educational loans be taken?
Educational loans can be taken to pursue a wide variety of courses, for example: · School/graduation courses, like High School, B.Sc., B.Com., B.A., etc. · Post-graduate/specialized courses, like B.Sc., M.Sc., B.A., M.A., B.Com., M.Com., etc. · Professional courses, like M.B.A., M.C.A., B.E., M.E., B.Tech., M.B.B.S., etc. · Other courses, like computer courses, fashion designing, commercial pilot training, etc. Keep in mind, however, that, usually, the courses financed should be for durations of more than a year, i.e., 12 months.
2. What are the costs covered under educational loans?
Educational loans usually cover the costs of tuition fees, hostel fees, mess fee and examination fees. Some banks may also finance the cost of books, equipments and other instruments required by the student for that course. For studies abroad, banks may provide one-way air fare. But this needs to be checked with your individual bank.
3. Who is eligible for an educational loan?
There are many criteria that determine the eligibility of a student for an educational loan. These vary greatly from bank to bank. The most important criterion is that the student must have qualified for, or have a confirmed admission in a college or institute. The other factors that are normally important with nationalized banks are the age band, i.e. the student applying for the loan must be in the age group of 16-26 or some such specified range. Other criteria are good academic record (first class throughout, with no gaps or breaks in education, etc.), and a regular source of income for the parents. The recognition granted to the institution the student has opted for is also an important criterion.
4. What is the maximum amount that can be availed under educational loans? / How is the maximum loan amount calculated?
The maximum loan amount varies from bank to bank, but, most importantly, it depends on the course for which the loan is sought and the institution chosen. For example, the loan amount for an M.B.A. course would be different for different institutes--the fees at I.I.M.'s would be approximately Rs 2 Lac, whereas at Somaiya it would be Rs 80,000. Hence the loan amount will vary drastically. But many banks have a margin criterion, which means that they would provide up to 75 per cent or 90 per cent of the total cost of the course, while the balance has to be paid by the applicant. The loan amount can also depend on the borrower's parents/guardians net monthly salary. The loan amount could also be calculated as being six or 10 times the monthly salary of the parent. Ultimately, however, the loan amount would depend on the discretion of the bank.
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5. What security does one needs to provide for the loan?
The security depends on the loan amount. It is quite possible that banks may not require security for a loan of up to Rs 25,000, but would require it for amounts greater than that. These limits are usually in slabs that vary with banks. The usual security that the banks generally take are National Savings Certificates (NSCs), bonds, gold, vehicle, house or property, etc. In addition to these, some banks might also require the applicant to have a life insurance policy equivalent to, or greater than, the loan amount.
6. What are the documents required for an educational loan?
The general documentation required by the banks for disbursing education loans is usually very simple. The most important among them is proof from the college/institute that the student has a confirmed admission there. Then comes an agreement with the students or the parents/guardians, and proof of residence. Proof of age is also important, considering that quite a few banks have a clause that they would not finance a student above a certain age limit. Also required are documents to prove that the parents/guardians have a regular source of income, namely, salary statements, IT returns, etc. And, lastly, a resume of the student, clearly showing his past academic performances.
7. What are the interest rates for educational loans and how are they calculated?
The interest rates vary significantly from bank to bank. It is usually determined on certain slabs. For instance, for loans up to Rs. 25,000, the rate of interest would be 12 per cent, for Rs 25,001 to Rs 2 lakhs, 14 per cent, and for loans greater than Rs 2 lakhs, it would be 16 per cent. The interest rates could be fixed or variable. A fixed interest rate means that the rate of interest for the entire tenure of the loan would remain the same, whereas a variable interest rate, which depends on the Prime Lending Rate (PLR) set by the Reserve Bank of India, keeps changing half-yearly or yearly. Usually, nationalized banks follow variable interest rates, while private and foreign banks follow fixed interest rates. It is advisable to opt for variable interest rates because it has been seen, over the years, that the PLR has been dropping, and hence the interest rates applicable on the loan amount would drop correspondingly. The interest on the educational loan taken by a student starts immediately after the day of disbursal. The interest is payable on a quarterly reducing basis, calculated on a simple interest basis. But once the repayment of the actual principal starts, the interest is calculated on a compounded basis.
8. What is a holiday period?
A holiday period is the maximum time given to the student before he/she needs to start paying back the principal loan in Equated Monthly Installments (EMIs). In other words, it is the period between the student's final examination in the course for which the loan was availed and when he/she actually starts paying the EMIs. Typically, holiday periods range from six to 12 months. Take note, however, that if the student starts working immediately after completing the course, he does not enjoy a holiday period. Repayment usually starts six months after the course completion or the commencement of a job, whichever is earlier.
9. How is the disbursement made?
Disbursement of the educational loan is made directly to the institute/college to which the student has applied for admission. In the case of mess and hostel charges, the relevant amounts are given to the concerned authorities. In the case of air fare, which is also available for studies overseas, the amount is given directly to the airlines. Some banks do give the students themselves a certain amount on a monthly or quarterly basis for purchasing books, equipments and other related material associated with the course. This, again, depends on the discretion of the bank.
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10. Why do banks require an insurance policy?
When the loan amount is greater than a lakh, banks usually prefer students to have Life Insurance Corporation (LIC) policies equivalent to, or more than, the loan amount. This is nothing more than a security feature that also forms a part of your collateral. In case the student is not able to pay back the loan, the bank does not lose money on it and can recover the outstanding amount from the student's LIC policy.
11. Why does the repayment of education loans taken for school/high school/graduation studies start immediately?
In the case of educational loans taken for school/high school/graduation courses, the student is not the borrower; his/her parents or guardians are. And since it is assumed that they have a steady source of income, the loan repayment can start immediately without any holiday period. Hence the repayment starts immediately.
12. Is there any special privilege for students in the Scheduled Caste/Scheduled Tribe (SC/ST) category who avail of educational loans?
Yes, special privileges, in terms of eligibility and margin money, are given to Scheduled Caste/Scheduled Tribe students availing educational loans. The eligibility criteria are lowered from first/second class to pass class for SC/ST category students. Further, the margin money for them is sometimes nil or lower than the normal amount. Only nationalized banks offer these privileges to SC/ST students, and not private or foreign banks. Even with nationalized banks, one needs to properly check out these privileges beforehand.
13. When do I need to apply for a loan?
One major criterion that banks seek is confirmed admission. So, once the student has secured a confirmed admission in an institute, along with a break-up of fees and other related issues from the college, he/she can approach a bank for an educational loan.
14. I don't have a continuous track record of First Class, but I have secured admission in a reputed institute. Will I get an educational loan?
Yes, a good academic record is essential, but not compulsory. A lot depends on one's relations with the bank, and the bank has a sole discretion over the disbursement of the loan. Also, a lot depends on whether you are able to provide the collateral required by the bank. If both of the above factors are in your favour, you could be the lucky one to get an educational loan from the bank for your further studies.
15. Why are guarantors required?
Guarantors are essential for sanctioning of loans. Usually, a guarantor is required so that if the applicant fails or becomes incapable of repaying, the guarantor will be responsible for clearing the debt. Usually, a guarantor so chosen is a person with a net worth (i.e., annual income) equivalent to, or more than, the loan amount.
16. Will I get an educational loan for `payment seats' also?
Yes, one can get an educational loan for payment seats too. Usually, the banks have a ceiling for each course, and, based on that, they decide the loan amount. So long as the loan amount does not cross that ceiling, the student can be assured a loan, provided he/she satisfies the other eligibility criteria.
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17. What are `professional courses' and `other courses'?
Professional courses are ones that are very specialized, like M.B.A., M.C.A., M.B.B.S., Engineering, C.A, Architecture, etc. These courses are usual graduation courses spanning three to four years, but since they deal in very specialized fields, they are termed `professional courses'. `Other courses' are those that are not included in any other category, like school/graduation, post-graduate and professional courses. These could include courses like fashion designing, computer courses from reputed institutes or courses affiliated to the Department of Electronics, etc, commercial pilot's courses, and courses for fine arts.
18. What is the margin amount and how is it calculated?
A margin amount is the amount that the applicant pays through his/her pocket. A bank can either pay 100 per cent of the cost of studies or a certain percentage of the total cost. The margin is usually the amount not covered by the bank for the payment of the essential and necessary fees to the college/institution. Consider an example: Bank XYZ offers a loan for an M.B.A. course, and the margin is 10 per cent. Here, 90 per cent of the cost of the course will be borne by the bank and the balance 10 per cent has to be borne by the student/applicant.
19. Is the student's age a major consideration while applying for an educational loan?
This again depends on the bank and its discretion. Quite a few of the nationalized banks follow the criterion of sanctioning loans to students falling in a particular age group, e.g. 15-25 years. But this is not so with private and foreign banks. It is always safe to check with your bank first for all the details regarding eligibility.
20. Will air travel fare be given by the bank as part of the educational loan?
That depends on the bank concerned. Some banks provide for air fare, applicable only once, and one-way, at the time of joining the course. This is given to students going abroad for further studies, and is not applicable for students going for domestic studies. The money for the one-way fare is given directly to the airline concerned, and not to the applicant.
21. Is it necessary to have an account with the bank to avail of an educational loan?
Initially, this used to be important criterion with nationalized banks. Now, however, with more relaxed norms, it is not mandatory to have an account. However, if one does have an account with that particular bank, it becomes easier to get the loan sanctioned. This is because the bank can examine your past financial records and transactions, and make a decision quickly.
22. What do banks mean by `recognized' and `reputed' institutions?
`Recognized' institutes refer to those that are affiliated to the State/Central universities and come under the Central government's University Grants Commission (UGC) programs or the All India Council on Technical Education (AICTE). The majority of the colleges fall within the ambit of the UGC and AICTE. `Reputed' institutes are those that are pretty well-known and have standard courses of repute. The definition of `reputed' institutions might vary with banks, which usually have a list of colleges and institutions that they consider reputed. Hence, you need to check with the bank whether it will finance courses run by that particular college/institute.
23. How are my second- and third-year fees going to be disbursed?
The fees for all the years will be disbursed to the college/institute directly. Initially, while applying for a loan, the bank will verify the tenure of the course, and determine the cost of the entire course, as applicable at that point of time. Then, each year, the applicant is required to submit a form available from the bank that gives the details of the money required, and then the bank directly disburses the loan to the college/institute.
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24. What Income Tax (IT) relief's can be claimed for repayment of educational loans?
Under Section 80 E of the IT Act, a deduction will be allowed in respect of repayment of loan taken for higher education, subject to the following conditions: In computing the total income of an assessee, being an individual, these shall be deducted, in accordance with, and subject to, the provisions of this section: any amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of loan, taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his/her higher education, or interest on such loan, provided that the amount that may be so deducted shall not exceed Rs 25,000. The deduction specified above shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or untill the loan referred to above, together with the interest thereon, is paid by the assessee in full, whichever is earlier.
25. Can educational loans be availed for part-time courses/distance-learning programs (correspondence courses)?
Most of the banks prefer not giving loans for part-time or correspondence courses, but ultimately it all depends on the bank's discretion and your relation with the bank. Since eligibility criteria are relaxed for these types of courses, and the chances of getting a good job after such courses are generally bleak, and also assuming that the applicant would be already working somewhere, banks prefer to stay away from financing these kinds of courses. But there are banks like the State Bank of India that provide students' loans for part-time and correspondence courses.
26. What is an interest portion and EMI?
The interest portion is the amount paid by the student during the time of his course that starts immediately from the month following the loan disbursal. During the tenure of his course, he/she keeps paying interest to the bank, whereas the main principal is only paid at the end of the holiday period. EMI or Equated Monthly Installment` is the amount payable by the student after the end of the holiday period that includes a certain portion of interest and principal. EMIs are calculated on a quarterly reducing basis.
27. Can a minor avail of an educational loan?
No, a minor cannot avail of an educational loan. But his parents/guardians who satisfy the eligibility criteria can do so. Banks assess the individual's repaying capacity at the time of disbursing the loan, and, hence, minors are ineligible for educational loans
28. What happens if I take a break from my studies?
If, for any untoward reason, you are unable to complete the course, you will have to start paying the EMIs immediately. Some banks might give the students some grace period, either to continue his/her studies or to start repaying the loan. But this is entirely the bank's discretion.
29. Is there a penalty for pre-payment?
That depends on the bank. Nationalized banks do not have any pre-payment charges, but private and foreign banks usually charge a penalty, which usually ranges from 0.25 per cent to 2 per cent of the outstanding loan amount.
30.I need to pay in dollars for my studies, but the bank is in India. Can I get a foreign exchange loan?
Although the bank is in India, the student gets his amount in dollars for studies overseas, and the amount is paid directly to the institution abroad. Hence, you need not worry about the currency. The banks charge students a fee for this service, strictly as per RBI norms. |
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